Helping Zambia’s farmers ditch tobacco with innovative finance

As the market for tobacco leaf gradually declines, innovative financing offers a window of opportunity to help farmers transition to better, alternative livelihoods

This article was originally published by UNDP

By Gail Hurley and Dudley Tarlton

Last month, we met with smallholder tobacco farmers in rural Zambia to talk about their livelihoods and aspirations for their families’ futures.

Their message was clear: we’d prefer to farm something else, but can’t afford to do so.

Meeting with smallholder tobacco farmers in Kabwe, Zambia in March 2019

Since 2011, the total number of cigarettes smoked has continued to fall each year, while the global population has grown. Meanwhile, the number of farmers growing tobacco has increased — so the supply of tobacco leaf is increasing while demand is dropping.

And this trend is only likely to accelerate.

Tobacco markets in developed countries are being shaken up by new tobacco products such as e-cigarettes, that face their own health and regulatory questions, but are increasing in market share and require about 90 % less tobacco leaf than traditional cigarettes.

If demand for these products continues to rise, it will have major implications for the tobacco leaf market.

Beyond the market imperatives for a transition to a more profitable crop, tobacco cultivation causes unique harm to broader sustainable development. Tobacco kills 7 million people each year and sickens millions more. Nearly any economic activity is more productive than investing in a product that costs an estimated 1.4 % of annual global GDP.

Tobacco growing also presents challenges to those who farm it. Small farmers working under contract with the tobacco industry have limited selling options and tend to have far lower incomes and higher labour costs than other smallholders.

Tobacco farmers incur significant additional costs for which they are not compensated, and which are not factored into labour or environmental costs, including building their own curing sheds, and obtaining and burning the wood they need to cure tobacco leaves.

Tobacco growing is also widely associated with child labour. This was indeed the case with the Zambians we spoke to, where women and children are needed to work the fields, limiting their education and employment options.

Finally, the environmental impact of tobacco growing is significant. It’s land intensive and curing the leaves requires significant amounts of wood. Tobacco growing is estimated to account for 5 % of all deforestation.

Given the significant health, social and environmental impact of tobacco cultivation, UNDP, in partnership with the Secretariat of the WHO Framework Convention on Tobacco Control(FCTC), the UN’s Food and Agriculture Organization (FAO), the World Health Organization(WHO) and the American Cancer Society (ACS) discussed ways to support small-scale farmers who want to transition out of tobacco growing.

Hearing these farmers’ arguments, and collecting data on their livelihoods such as income and family nutrition, reinforced the work of UNDP and our inter-agency team to develop and structure an innovative impact bond to aims to harness private sector capital and blend it with aid financing.

The impact bond will source upfront capital for investments in these key services from impact investors motivated not only by a financial return, but also social and environmental impact. Investors will be repaid plus a small return for the risks they took when results are achieved as measured by a robust impact indicator framework.

TSIB mechanics picture

UNDP’s Tobacco Control social impact bond proposes to help smallholder farmers in rural Zambia transition out of tobacco growing by providing finance, connecting them with new markets, developing supply and value-chains and training them to identify promising alternatives. Many already know what they want to do — from nuts and vegetables to sustainable aquaculture and dairy. There are many opportunities.

Not only will farmer incomes improve, boosting local productivity, but there will be important cost savings to the Zambian government in the form of improved health and nutrition for farmers and their families, an improved environment, and a more resilient economy. There will be profit for both the farmers and those investing in them.

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